A blog on strategies, and applying strategic perspectives on business related issues, and on miscellaneous discussions about China

2008-05-20

Managing the risk of earthquake

1) the PRC government is far from doing a good job in quake prevention, or in safety monitoring, or anti-corruption -- for the past 40 years2) even if we have Lee Kuan Yew managing Sichuan for the past 40 years, this disaster cannot be avoided (but damage should certainly be reduced, though the amount is unclear)3) the art of earthquake prediction is still in its infancy. Even the 'warning' of Densmore et al. (pdf of the original article here) only managed to highlight that Longmen Mountain is a high risk area.

What should the government do? issue warning? enforce evacuation?

The best solution is perhaps to rely on the market. Let the insurance (to be precise, re-insurance) companies take the risk. The governement may require the builders and owners to pay for insurance premium. The insurance companies will then choose to fund which team of scientist, for how much, and what to act upon receiving a warning. Before we find a reliable (i.e. repeatable) earthquake prediction methodology/algorithm, we will have to rely on fuzzy logic and statistics/probability. Re-insurance companies will compete with each other, and only the fittest (i.e. those which could avoid loss of lives/properties at less cost) will have the competitive advantage.

The insurance companies are perhaps the best (more appropriate) people (at this moment) to do this, as they have done for HMO -- which allows them to reimburse preventitative medicine so that they could minimize the total medical bill in the long run.

4 comments:

Anonymous
said...

The insurance companies are perhaps the best people (at this moment) to do this, as they have done for HMO -- which allows them to reimburse preventitative medicine so that they could minimize the total medical bill in the long run.

That statement supposes that HMOs weigh heavily long-term medical risks. Most Americans, including myself, have changed health insurance policies a few times. This is normal since a majority of Americans obtain insurance through their employers, and most Americans do not remain with one employer throughout their lives. The degree of coverage for preventive care varies considerably among policies. This doesn't even address the issue of individual private policies, which are free to deny coverage for pre-existing conditions. US privatized health care is not a good analogy or model for disaster insurance in China.

Even US disaster insurance is not a good model. Many victims of Hurricane Katrina were denied claims because the insurance company argued that the damage was "wind-driven" and not merely flooding. I'd worry very much about Chinese property owners being misled and cheated out of claims. I do think that insurance people are very good at assessing risk since their business depends on it.

How do insurance companies work in China, is it roughly the same as in America? Also, how many people in China have insurance like house, health, or car, is it widespread or still a luxury thing?

I think using insurance companies to control risk is a interesting idea and a step in the right direction, more so because it's an independent entity and it's less susceptible to bribery. But I agree with Sonagi that you might get shafted in the end, like in the Katrina case, so some regulations and modifications are needed.

well, HMO are not good. but they are better than their predecessors, who would not reimbursed testing (eg diabetes testing strips).The management consultants had to convince the insurers than by paying for the test they say the cost in the longer term (of late stage treatment). Hence HMO was borned.

The problem with US is that of the whole healthcare system (and lack of competition due to Pharma lobbying and hence protectionism on import from eg India) etc. plus all those Sicko described. HMO itself is the better element in this mess.

this is more of a 'concept' thing. far from being implementable.(and is not china specific -- in fact, it is probably easier to test first in US, where the regulation is mature and the market is much larger to support the research and risk mitigating initiatives by insurance companies -- the insurance can decide on evacuation advices, and the civilians can ignore such advice but meanwhile forfeit the compensation. when insurers issue evacuation, they need to pay for the cost of evacuating.